The year has kicked off with a bang in the mortgage market.
A price war between major lenders is underway as markets reassess their interest rate expectations, and lenders rapidly reprice their products.
Barclays and Santander are among the latest financial institutions to announce a slash to their mortgage rates, joining the ranks of HSBC and Halifax, and sub 4% two-year fixes have made a welcome comeback.
Has the market turned a corner?
This builds on more positive momentum seen towards the end of 2023. The latest Bank of England data shows that gross mortgage lending rose in November to £16.6bn, from £15.9bn in October, and net approvals for remortgages rose by 13% to 27,000. Still subdued by historic standards, but improving as mortgage rates began to ease.
The timing of a ‘race to the bottom is particularly significant, as the FCA has estimated that over 1.5 million fixed mortgage deals are set to conclude in 2024. While those remortgaging will not enjoy the same rates they did prior to the mini-Budget in September 2022, the financial pain will be somewhat eased. For brokers and the broader industry, an environment of falling mortgage rates creates a raft of new opportunities – and challenges.
A catalyst for activity
The burgeoning price war is highly likely to reinvigorate remortgage activity, whether through product transfers, or switching activity as borrowers seek to capitalise on the newly available lower rates.
This won’t just be those whose fixed rate deal is expiring, but also those who switched onto a tracker rate in the past couple of years and may look to remortgage early to secure a better financial outcome. For brokers, this will naturally present an opportunity to engage with long-standing clients.
But the ramifications of a more vibrant mortgage market don’t just stop at remortgaging. Improved affordability calculations will benefit first time-buyers and up-sizers alike, stimulating demand, and freeing up property chains. Many property investors too, are likely to revisit the financing of their portfolios.
Innovating to mitigate capacity constraints
While a boost to activity will be welcomed by the mortgage industry, given the level of pent-up demand, spikes in transactions will place pressure on the capacity of the systems that support the mortgage market.
Chief amongst these is the conveyancing process. Without proactive measures to enhance the conveyancing and property settlement process, the market may experience significant bottlenecks, giving brokers painful flashbacks to the end of the last stamp duty holiday.
The process is still too slow and painful. The persistence of cumbersome manual procedures, the potential for human error, excess administration, and lack of transparency on case progress for borrowers is still too widespread. It causes unnecessary delays, stress and results in too many consumers abandoning applications that would financially benefit them.
We need the conveyancing process to be match fit, so that it can absorb excess demand and support the agility both borrowers and their brokers need in order to capitalise on rapidly changing product prices.
We believe technological innovation is central to this. We are working with industry to transform conveyancing and make propositions like the 24-hour remortgage a reality – given borrowers who switch providers a similar experience to those who do a product transfer.
The benefits are tangible. Just last week, with Shawbrook Bank, we completed the first digital remortgage for a limited company landlord, which saw the whole process – for an 11 property portfolio – take just 28 days from application to completion. This level of speed and ease should become the norm.
The year 2024 has clearly started on positive footing for the industry. Economic news is better than feared, inflation is easing, and the prospect of looser monetary policy is helping drive down prices – and should support demand. But the market’s readiness to handle this surge will be a determining factor in whether the price war translates into a positive outcome for all stakeholders.
Joe Pepper is chief executive at PEXA UK
